Property Finance Update - September 22
We've made it to spring! As the season changes, so does the property and lending landscape. Here are four stories making headlines right now:
Buyers remain active
Property history lesson
The dangers of BNPL
Why rents are rising
Read more below.
There are still a lot of active buyers in the property market, judging by the latest home loans data from the Australian Bureau of Statistics. Borrowers signed up for $28.4 billion of new home loans in July. That was 11.3% lower than the previous year but 47.3% higher than the average over the previous 15 years. So while conditions are much more buyer-friendly than they were during the recent property boom, there’s still quite a bit of buyer competition, especially for quality homes.
Meanwhile, refinancing activity is close to record-high levels. Borrowers refinanced $17.9 billion of home loans through new lenders in July – which was not only 7.6% higher than the year before but also the second-biggest refinancing month in history. With interest rates rising, many people realise how important it is to be on a lower-rate loan, so they’re shopping around. I’ve helped many people refinance, and I can help you too. Get in touch so we can discuss your options.
Property prices may go up or down in the short-term, but history suggests they increase in the long-term. That’s the key takeaway from a CoreLogic analysis of property prices over the 30 years to July 2022. Australia's median property price increased 382% during that 30-year period. Houses outperformed units (453% v 307%) and metro locations outperformed regional locations (409% v 294%). Crucially, property prices didn’t grow so strongly because there were never any downturns; they grew strongly despite regular downturns along the way.
“Over that 30-year period, we have seen six distinct cycles of growth and an equal number of cycles of decline (including the current downswing) across the national index,” according to CoreLogic. “Each of the upswings and downturns have been characterised by different environments and catalysts of change such as taxation policy, monetary policy decisions, economic shocks, fiscal stimulus and broader economic conditions.” While past performance is no guarantee of future performance, history suggests that homeowners who purchase quality properties and hold them for the long-term enjoy significant capital growth.
Australians are making increasing use of credit cards and buy-now-pay-later services, which could potentially have implications when they make home loan applications. Credit card applications in the June 2022 quarter were 6.0% higher than the June 2021 quarter, according to Equifax, one of Australia's big three credit bureaus. Buy-now-pay-later (BNPL) applications jumped 42.2% during the same period. Lenders look at this kind of spending behaviour when they assess home loan applications. With credit cards, lenders generally assume you’ll use your entire credit limit each month, even if you use only part of it and always pay your bills on time. That can affect your borrowing power. So if you wanted to raise it, you could either reduce your credit limit or cancel your credit card and pay by debit instead. BNPL use can also affect your borrowing power, because lenders may wonder how much of a mortgage you could be trusted with if you make a lot of non-essential purchases and seem unable to pay for them in full at the time. So to protect your borrowing power, you could either reduce your BNPL use or stop it altogether.
Rental listings have fallen in seven of Australia's capital cities compared to the start of the pandemic, according to realestate.com.au. The portal has reported that the number of rental properties across Australia was 31% lower in July 2022 than March 2020. Listings declined in every capital city except Canberra:
Darwin down 54% (between March 2020 and July 2022)
Brisbane down 42%
Perth down 42%
Adelaide down 38%
Sydney down 30%
Hobart down 25%
Melbourne down 8%
Canberra up 33%
Amazingly, rental listings declined even more in regional locations, ranging from a 25% reduction in regional Victoria to a 63% reduction in regional Western Australia. Unsurprisingly, the fall in rental listings has led to:
An increase in the number of potential renters per listing
A decrease in days on market
An increase in rental rates
"As rental price pressures continue in the period ahead, this could increase the attractiveness of buying for some current tenants," REA Group senior economist Eleanor Creagh said.